Microsoft confirmed to buy Skype for $8.5 billion

Update: Microsoft has confirmed the acquisition.

Microsoft is reported to have closed an $8.5 billion all-cash deal for the Internet voice and video calling service Skype. The Wall Street Journal says to have confirmed the news after GigaOm first reported it yesterday, and Redmond is expected to make it official in an announcement this morning. This would be the company's largest acquisition yet, ahead of the $6 billion it paid for online advertising company Aquantive in 2007.

It's been a long road for Skype, founded back in 2003, which was first acquired by eBay in 2005 for $2.6 billion in what's considered a failed experiment to have buyers and sellers communicate via voice calls on the auction site. The latter gave up on Skype in 2009, selling a 70% stake to a group of technology investors. Despite their huge user base and household name in the world of communications, Skype was still on its way to becoming profitable, but with eBay and partners anxious about the delayed initial public offering they had been pushing for a sale of the company.

It remains to be seen if the next phase of Skype's life as part of Microsoft proves a better fit than its former owner. Some suggest the service could be integrated into consumer products such as the Xbox 360 and Kinect, or into Microsoft's flagship Office suite and other enterprise offerings to compete against Cisco and Google. However, most agree that the biggest reason for Microsoft to buy Skype is Windows Phone 7.

The software giant would benefit from a competitive alternative against Google Talk with video and voice chat on Androidas well as Apple's FaceTime. It also gives them a chance of working with carriers as they transition to LTE-based networks and are finally more open to routing their voice traffic through applications like Skype.

As reported earlier Google and Facebook had also shown interest in either partnering with Skype or buying the company. Given that the former already has a voice service in place it would seem that Facebook is the sore loser in this battle, but it might actually reap some benefits without having to plunk down the cash. After all, Microsoft is an investor in Facebook, and the social network already has a previous arrangement with Skype on which it can build upon